Is "Dow 16,000" a Reachable Target?
We all saw it.
Barron's April 20 cover showed a cartoon bull on a pogo stock, with the exclamation "Dow 16,000!"
So what's the investor takeaway – are we all in to 16,000, or is it a contrarian signal to watch out for a looming market pullback?
Money Morning Chief Investment Strategist Keith Fitz-Gerald joined FOX Business Network's "Varney & Co." program to answer that question.
Watch the following interview with Fitz-Gerald to find out.
Keith Fitz-Gerald on Samsung, IBM and Why Businesses Won't Borrow
Money Morning Chief Investment Strategist Keith Fitz-Gerald joined FOX News' Neil Cavuto for a "Biz Blitz" segment April 26. On tap were these three hot issues of the moment:
- Issue #1: Samsung profit is soaring, while tech king Apple is on the decline. Is this because of buzz Samsung is creating for its phones, or are we witnessing a major consumer shift for the hottest tech products? Does Samsung have a shot at winning over Apple lovers?
- Issue #2: IBM CEO in an internal company video tells employees after a weak earnings report to get their act together – or get out. Is this too harsh, or a necessary tactic to turn the company around? Can it work?
- Issue #3: Outstanding loans by the biggest banks to U.S. companies fell 9% in the first two weeks of April compared to the end of March. What's behind the decline – and what does it tell us about the U.S. economy in 2013?
To get the answers from Fitz-Gerald and fellow guest Dave Maney, watch the full interview below.
Keith Fitz-Gerald: Cyprus is "The First of the Dominoes to Fall"
With guards outside Cyprus banks Friday and depositors reeling after suffering huge losses, the nation's central bank reassured residents they wouldn't face restrictions on using their debit and credit cards.
But according to Money Morning Chief Investment Strategist Keith Fitz-Gerald, the reverberations and possible implications of the Cyprus bailout extend well beyond the island nation.
Appearing on the FOX Business Network, Fitz-Gerald said Cyprus had "achieved every central banker's dream. They have privatized gains and socialized losses, and this is the first of the dominoes to fall."
He said "any nation in the world is subject to this now that politicians have figured out they've gotten away with it."
To see why it matters and what else Keith had to say, check out the video below.
The Cyprus Bailout Sets a "Very, Very Dangerous Precedent"
The Cyprus Parliament appeared poised Tuesday to reject the $13 billion international bailout that would force bank depositors to pay a levy.
So what happens now?
Will Russia step up to offer money in exchange for oil and gas? Will China offer a similar deal to Cyprus?
Will those with money in Cyprus banks withdraw it and deposit it elsewhere, leading to a run on the banks?
Will investors flock to gold as a safe-haven investment?
Money Morning Chief Investment Strategist Keith Fitz-Gerald appeared Tuesday on Fox Business to talk about the fast-developing story in Cyprus and the potential fallout in Europe and well beyond, including in the United States.
Fitz-Gerald said a vote in the Cyprus Parliament to reject the bailout "is a big deal because it sets the stage for a very, very dangerous precedent."
Check out this video to hear Fitz-Gerald's perspective on the Cyprus situation – and whether the U.S. government could come after your bank deposits.
Investors Who Own Japanese Stocks are About to Get a Nasty Surprise
[Kyoto]-September's anti-Japanese protests in China over the disputed Senkaku/Daioyu Islands may have come and gone in the Western press, but the real damage is only just beginning for investors who have piled into Japan in recent years.
With their focus on the U.S. fiscal cliff and ongoing EU banking problems, many investors just don't understand how interlinked trade between China and Japan has become, nor the breadth of the damage this strained relationship can do to their portfolios.
But they're about to.
The breaking news here in Japan is that Honda cut its full-year net profit forecast by 20% following a 40% drop in September sales. That marked a 16-month low in sales that is directly related to nationalistic friction between the two nations.
That's adds up to a 95 billion Yen hit. To put this into perspective, Honda's net profit last year was only 211.4 billion Yen, so we're talking about a nearly 50% drop in the company's bottom line.
Under the circumstances, I would be very surprised if Nissan and Toyota, both of which also have significant operations in China, don't follow with similar results when they report next week. While I haven't seen estimates from Nissan yet, Forbes reports that Toyota sales are off a staggering 49% over the same time frame.
That's the biggest drop in a decade.
That's not inconsequential considering that Chinese-Japanese trade accounted for more than $340 billion USD in 2011. Japan is China's fourth-largest trading partner after the EU, the U.S. and the ASEAN nations respectively. It accounts for approximately 10% of China's total annual gross trade volume according to Xinhua.
On the other hand, China is Japan's largest trading partner and has been since 2007 when Japanese corporations dropped the U.S. market like a hot potato. China is also Japan's single largest export destination, accounting for nearly 25% of total export volume as well as the single-biggest source of its imported goods.
The damage won't be limited.
Banks Are Setting Us Up Again, This Time The Fall Could Be $2.6 Trillion or More
Just five years after they played a primary role in engineering the worst financial crisis since the Great Depression, America's big banks are quietly setting the world up to do it all over again.
Only this go-round the costs will be far higher and the damage much worse. This time the fall could be $2.6 trillion or more.
Let me explain.
It started back in the mid-2000s. Wall Street was busy packaging low-rated subprime loans into securitized offerings that were somehow worth more than the sum of their parts.
In reality, what they were doing was little more than laundering toxic debt while raking in obscene profits along the way.
You know the rest of the story as well as I do. Not long after, the stuff hit the proverbial fan and it was not evenly distributed.
Well here we go again…
Both JPMorgan and Bank of America are quietly marketing a new scheme designed to "transform" sub-par assets into quality holdings that will serve as treasury-quality collateral needed to meet the new capital requirements that come into effect in 2013 as part of the Dodd-Frank Act.
Wall Street Is Up to Its Old Tricks
This may sound complicated but it's not. It works like this.
When you trade on margin like these mega-institutions do, you are required to post collateral to offset counterparty risk. That way, if the trade busts and you are unable to deliver on your side of the trade, there is recourse.
If you have a mortgage or a car loan, you know what I'm talking about. Your lender can seize both if you default or otherwise fail to meet your payment obligations.
Trading collateral works the same way. In years past, trading collateral has most commonly taken the form of U.S. treasuries (or other securities) that meet stringent requirements with regard to ratings, liquidity, value and pricing.
However, since the financial crisis began, treasuries are in increasingly short supply. Investors and traders who have preferred safety over return are hoarding them.
Consequently, traders like JPMorgan's London-based "whale," Bruno Iksil, who want to write increasingly bigger, more sophisticated trades are in bind. They find themselves unable to trade because many times the clients they represent can't post the collateral needed to "gun" the trades.
As you might imagine, Wall Street doesn't like that because it means billions in profits and bonuses get lost as trading volumes drop.
So they've gone to the unregulated woodshed again and come up with yet more financial hocus pocus designed to circumvent rules in the name of profits.
At the same time, they're once again hiding the true extent of the risks they are taking – and that's the outrageous part.
These same banks that have already driven the world to the brink of financial oblivion and been bailed out once may need another $2.6 trillion dollars or more to backstop the unregulated $648 trillion derivatives playground they've created for themselves.
And don't think for a minute that your money isn't at risk either…
Enjoy the Rally While it Lasts, Super Mario Draghi’s Bazooka is a Dud
Not too long ago I mentioned that whatever European Central Bank President "Super Mario" Draghi delivers, it had better be big.
Because the only way he could hope to shore up the beleaguered e uro, wrest control of interest rates from the modern day financial pirates that dominate credit default swaps and break the impasse between skittish investors was with a monetary "bazooka."
We certainly got one yesterday when he announced an unlimited bond purchase program designed to do exactly this.
The S&P 500 shot up 26.13 points while the Dow and Nasdaq both tacked on 216.01 and 62.80 points respectively. European markets also moved sharply higher on the news as well while Spanish and Italian yields tumbled at maturities of every length suggesting traders relaxed their risk aversion stance considerably.
Under Draghi's plan, the ECB will be buying unlimited amounts of short-term sovereign debt while also sterilizing that debt– ostensibly to stave off concerns about hyperinflation and further money printing.
Up to now, the ECB has only purchased troubled EU bank bonds as a buyer of last resort. So this is a big change now that Draghi is talking about stepping up as a sovereign debt buyer, albeit also of last resort.
Draghi noted interestingly that the ECB will retain exclusive decision making on when to engage in purchases, the amounts purchased and when to stop. This effectively puts the politicians on notice that further bickering will not be tolerated.
Further, Draghi did not rule out purchases of Greek, Portuguese and Irish bonds when those countries regain practical access to the bond markets.
There are a couple of things that stand out here…
A Cause for Fear-Not Celebration
First, things are so bad that insiders are using euphemisms to describe Draghi's plan which is officially referred to as a "blueprint" and called "Monetary Outright Transactions."
I don't know about you but if it smells like a duck, walks like a duck and quacks like one, too…odds are pretty good it's a duck.
It doesn't matter whether you are talking quantitative easing or bond purchasing. The fact that things are so bad that central banks – first the BOJ, then the Fed, now the ECB – have to wade in as lenders of last resort should be a cause for fear rather than celebration.
If not now, then a few years from now, when it all comes back to roost.
Three Top-Notch Choices for Yield-Starved Investors
My dad held up his hands and shrugged his shoulders. "But what can I do in a yield-starved environment?" he asked.
"Plenty, actually," I told him.
In fact, there are a wide-range of choices available for income-hungry investors who are struggling to overcome the Fed's disastrous zero-interest rate policies.
Obviously, though, the suitability varies widely depending on individual liquidity, credit and yield requirements.
Here are some of the more interesting options I've been exploring lately:
Near-Term Tax Free Fund (NEARX): From U.S. Global Investors, this fund is billed as an alternative for investors who want safety but are willing to take on a bit more risk.
I like the fact that the fund is a very consistent performer with more than 10 years of positive numbers in the record books. I also appreciate that the fund has been around since December 1990, particularly since I view it as a possible substitute for traditional money market funds or even CDs.
Morningstar gives NEARX 4-Star ratings overall in the 3-, 5-, and 10-year categories, while Lipper bestows 5 stars for preservation, expense and tax efficiency.
The fund's goal is pretty straightforward. It invests in municipal bonds with short-term maturities issued by state and local governments nationwide.
Examples include holdings from the City of Chicago, the Commonwealth of Puerto Rico, and the City of San Antonio Texas Water System Revenue.
The strategy is pretty simple. With at least 80% of its net assets invested in investment-grade munis, it's exempt from federal income tax — including my personal "favorite" middle-class eviscerator, the alternative minimum tax.
Maturities are kept to five years or less to avoid the volatility associated with longer-dated issues and the threat of rising interest rates. The average maturity is 3.40 years, while the average duration is slightly lower at 3.06.
30-Day SEC Yield: 1.03%
Expense Ratio: .45%
Note: Don't be unnecessarily put off by the 1.03% yield. Remember this is a tax-exempt fund.
On a tax equivalent basis, the yield jumps to 1.77% for an individual in the 35% tax bracket. That's actually higher than the yield on 10-year Treasuries as of press time.
iShares Morningstar Multi-Asset Income Index Fund (IYLD): From iShares, this fund is a more aggressive choice for income-hungry investors. It tracks the underlying Morningstar Multi-asset High Income Index, which is itself comprised of equity, fixed income and alternative income exchange-traded funds (ETFs).
Five Ways to Consistently Bank Gains and Manage Winning Trades
Most investors become so focused on their losers that they have no idea how their winners are performing…until they become losers and start paying attention to them.
As far as I am concerned, that's bass-ackward.
What they should be doing is figuring out how to harvest their winners, especially now that the six-week rally we've enjoyed appears to be losing steam.
If you've been raised under the old axiom of "cut your losses and let your winners run," this may seem counterintuitive.
But, if you really want to succeed in today's markets, you have to consistently sell your winners. That way, you continually cycle your capital into brand new opportunities.
It's not much different than what regularly happens in the produce department at the grocery store. Places like Safeway Inc. (NYSE: SWY) always replenish the tomatoes and the like to keep them fresh.
You should do the same with the "inventory" in your portfolio because if you let your stocks sit on the shelf too long, they'll eventually go bad – just like fruit that's past its expiration date.
Here are some of my favorite tactics to help you lock in profits instead of letting irrational behavior and emotion take over when the markets suddenly have a mind of their own.
1.) Recognize every day is a new day
This one is very simple. If the original reasons why you bought something are no longer true, ditch it – win, lose or draw.
You can't risk falling in love with your assets any more than you can let them rust – yet that's exactly what most investors do. They buy something then assume that it will somehow plod along on autopilot.
This is a variation of what I call the "greater fool theory" as in some greater fool is going to come along at a yet-to-be-determined point in the future and pay you more for a given investment than you paid to buy it.
I can't imagine what these folks are thinking.
Today, more than ever, you've got to continually re-evaluate your investments to ensure that they stand on their own merits and are worth the risk of continued ownership.
What Skirt Lengths Tell You About The Stock Market
Over the years I've written a number of articles about trading indicators.
They have ranged from the commonly used variety – like moving averages, crossovers, the VIX, death crosses, and Bollinger Bands – to the esoteric, including the tallest buildings, Big Money Polls, financial astrology and, more recently, magazine covers.
You'd think the tools market technicians typically use would generate the most interest. But inevitably, it's the more unusual indicators that people are most attracted to.
Why?… I have no idea. I am not a social scientist.
But I can tell you this – having spent tens of thousands of hours computer modeling almost every indicator you can conceive of, the most consistent and best performing indicators are almost always behaviorally-based.
What I mean by that is that there is inevitably an element of human behavior that is either: a) responsible for the indicator itself; or b) contributes significantly to how it functions and why it's relevant.
My grandmother, Mimi, a seasoned successful investor in her own right after being widowed at a young age, used to chalk this up to what she called the "complexity problem" – as in, if it's too complex for me to understand, it's a problem.
She didn't use the term like I do today in a non-linear sense. She simply reasoned that if something was too complex to explain to her, it wasn't worth her time or her money.
Skirt Chasing and the Stock Markets
And that brings me to women's skirts.